More on the Misleading Ways Elizabeth Warren's Tax Advisers Are Calculating Data

Elizabeth Warren

Matthew Lilley writes to Tyler Cowen:

The eye-catching result here is they have consumption taxes being *sharply* regressive, e.g. 12% for the lowest income group. I’m not aware of any US state that has state + average local sales rates tax that high.

 And lots of goods are exempt from sales tax. So how do they get this? Well, suppose someone earns $1k in labor earnings and gets $9k in transfers, and consumes it all paying a 5% sales tax = $500 in tax. What sales tax rate have they paid (as a % of their income)? The method Treasury uses says 500/(1k+9k) = 5% (this is also what Auten-Splinter do). Saez-Zucman exclude transfers from the denominator, and thus say 500/1k = 50%. This is a matter of definition, so it’s hard to call it right or wrong, but it does seem misleading and yield some rather nonsensical implications. For example, it means that if welfare to the poor is increased, this will be measured as an increased tax rate.
It is becoming increasingly apparent that the Saez-Zucman tax claims are a distorted method to justify increases in taxes.

It is actually stunning to see the ways they will distort. Meanwhile, supporters of tax increases "on the rich" will use the headline Saez-Zucman claims as though the headline claims tell the full story.

Also see: How Elizabeth Warren's Tax Advisers Lie With Statistics.

-RW